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M.M. INTERVIEW: GARRETT FIRES BACK AT WARREN — Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services Subcommittee on Capital Markets, tells M.M. that Sen. Elizabeth Warren (D-Mass.) should support his legislative alternative to CFTC Chairman Gary Gensler’s effort to subject foreign subsidiaries of U.S. banks to Dodd-Frank derivatives rules. “What you have here is Gensler running in one direction and the rest of world running basically in another direction. Closer to home, you have Gensler moving in one direction and the CFTC going in the other direction. That’s why we put a bill in to try to solve this. Contrary to what the media says, all this bill really does is implement what Dodd-Frank intended, to have the SEC and CFTC work together to issue the same rule and do away with regulatory arbitrage.

“Secondly, what our bill would do would be done through rules as opposed to Gensler skirting around it with guidance. Doing it through guidance creates further uncertainty in the marketplace. You create a number of legal impediments toward what was intended to be a true cross-border framework that has the force of formal law. [The bill] actually gives the SEC and CFTC more authority than they have under Dodd-Frank by allowing them to be effective cross-border regulators when there is a systemic risk. If [SEC Chairwoman Mary Jo] White and Gensler find something that rises to the level of systemic risk, we give them something they don’t have: clear and direct authority to confront it. …

On the argument that opponents of cross-border swaps rules are trying to run out the clock on Gensler: “Ware trying to get the rule going sooner rather than later. We are trying to meet the July 12 deadline. … We tried to get this out of door of the committee and out of the House and to the Senate as quickly as possible. … Wouldn’t it be great if [Sen. Elizabeth] Warren would grab onto this today? That would be my invitation to her. I would love to have her sign on and carry this legislation in the Senate.”

TBTF HEARING PREP — House Financial Services has a big hearing this morning on whether “too big to fail” still exists under Dodd-Frank. Panelists include FDIC Chairman Thomas Hoenig, Dallas Fed President Richard Fisher, Richmond Fed President Jeffrey Lacker and former FDIC Chairwoman Sheila Bair. Here are Lacker’s previous comments on TBTF: http://bit.ly/17dGLpE. And Fisher’s: http://bit.ly/14WzPwO. Here is Bair on why TBTF may be over: http://cnnmon.ie/18f4SaB.

And here is an excerpt from Hoenig’s prepared statement for the hearing: “Almost three years after passage of … Dodd-Frank … an issue that remains critical to the long-run stability of our financial and economic system is the degree to which the government should subsidize and therefore facilitate ever-greater risk taking among our most dominant financial firms. These firms by their very size and complexity affect the broader economy to an overwhelming degree; and since the recent financial crisis, they have only become more influential and the economy more dependent on their performance.” Full statement: http://bit.ly/11GBxSr

POLITICS BLAST: MARKEY WINS EASILY — POLITICO’s James Hohmann: “Ed Markey has won the Massachusetts special Senate election, keeping both Bay State Senate seats in Democratic hands and denying Republican Gabriel Gomez’s bid to repeat of Scott Brown’s stunning upset of 2010. Markey led by 10 points, 55 percent to 45 percent, with 99 percent of precincts reporting. His victory in the deep-blue state was almost universally expected: Gomez a former Navy Seal and investor, never caught fire. … And Democrats went all out to avoid another GOP upset, pouring in millions of dollars and sending some of the party’s top surrogates to the state to campaign for Markey, including Barack Obama and Bill Clinton.” http://bit.ly/1acQj8b

IS THIS HOUSING BOOM REAL? — Best line on yesterday’s Case-Shiller home price bounce of 1.7 percent for April (the second-biggest increase on record) came from Pantheon’s Ian Shepherdson: “Looks great, but probably didn't actually happen.” … More: “[T]he Mar/Apr readings are so far above the prior trend that our suspicions are raised, not least because these two months have a habit of springing surprises in other data as a result of Easter seasonal adjustment problems. … The trend in home prices is strongly upwards, but the CS data overstate it.”

CHINA CASH CRUNCH EASES — Bloomberg: “The cost of locking in China’s interest rates slid for a fourth day, the longest run of declines since February, and money-market rates fell after the central bank pledged to ease the worst cash crunch in a decade.

"The People’s Bank of China has provided financing to some financial institutions to stabilize interbank lending rates and will use short-term liquidity operations and existing loan-facility tools to ensure steady markets, according to a statement posted on its website. … It also called on commercial banks to improve their cash management.

THIS MORNING ON POLITICO PRO FINANCE— Jon Prior on what’s next for the Corker-Warner Fannie, Freddie bill … To learn more about Pro's subscriber-only coverage -- and to get Morning Money every day before 6 a.m. -- please contact Pro Services at (703) 341-4600 or info@politicopro.com.

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TRANSITIONS: MOVES AT CITI — Per internal email from Citi’s Ed Skyler and Candi Wolff: “We are pleased to announce that Rob Sweeney will serve as the new head of State and Local Government Relations (SLGR). In this role, Rob will be responsible for managing our relationships with state and local governments and elected officials throughout the United States.”

FACEBOOK ADS BACK DODD-FRANK 'CHAMPIONS' — Liberal group Americans United for Change is running Facebook ads starting today backing what the group calls Dodd-Frank “champions” pushing back against efforts to water down the law. The ads will run for Elizabeth Warren (D-Mass.), Jon Tester (D-Mont.), Kay Hagan (D-N.C.), Sherrod Brown (D-Ohio), Jack Reed (D-R.I.) and Mark Warner (D-Va.).

OBAMA HINTS AT KEYSTONE APPROVAL — POLITICO’s Talia Buford: “President Barack Obama basked in applause Tuesday as he announced what sounded like a daunting environmental threshold for the controversial Keystone XL oil pipeline — that the project can’t go forward if it would ‘significantly’ increase greenhouse gas emissions. What he didn’t mention: His own State Department has already indicated that the pipeline can meet that standard. … [H]is remarks can certainly set the groundwork for the president to later say he’d successfully demanded the highest environmental safeguards for the pipeline, if — as is widely expected — he eventually gives it the green light. …

“His comments on Keystone — which were missing from White House previews of Obama’s climate plan — were a closely guarded secret until it was leaked moments before the speech began. The company building the pipeline and many of its top supporters in Congress saw Obama’s remarks as highly encouraging. Keystone builder TransCanada said in a statement that it’s ‘pleased with the President’s guidance to the State Department, as the almost five-year review of the project has already repeatedly found that these criteria are satisfied.’” http://bit.ly/11ZrOSO

PIPELINE DEEMED SAFE — NYT’s Dan Frosch: “Diluted bitumen — the blend of thick Canadian crude that would be shipped by the proposed Keystone XL pipeline — is no riskier to transport than other types of crude oil, a new study has found. … The study, which was conducted by the National Academy of Sciences and released on Tuesday, found that batches of diluted bitumen were no more likely to corrode or damage pipelines. And it determined that pipeline operators had no reason to change the way they handled the product. Commissioned by the Pipeline and Hazardous Materials Safety Administration, the report represents a boon to supporters of Keystone XL, who have long argued that oil sands crude can be reliably transported through the web of pipelines that cut across the United States. … [E]nvironmental groups and pipeline safety advocates questioned the report for failing to consider what happens when an accident involving heavy Canadian crude occurs.” http://nyti.ms/19rFQWY

ARE THE MARKETS MISREADING BERNANKE? — WSJ’s David Wessel: “The markets have misread Ben Bernanke. The Federal Reserve chairman's news conference a week ago was widely seen as a signal that the Fed is preparing to wean the economy off easy money, perhaps sooner than many anticipated. Global stock markets plunged … That is neither what Mr. Bernanke expected nor what he meant. ‘There is no change in policy here,’ he said at the news conference. …

“One possibility is that markets — and analysts who interpret them — misunderstood Mr. Bernanke. Goldman Sachs economists called the news conference ‘a hawkish surprise.’ … Another possibility is that Mr. Bernanke didn't fully grasp market dynamics. He was responding to calls from investors, the cries from analysts, investors and the press for more clarity about the Fed's thinking, but didn't appreciate how hard it is to predict how markets will react to lengthy explanations.” http://on.wsj.com/10jO39x

CORKER-WARNER REACT —

FROM THE BILL’S FACT SHEET — “The Housing Finance Reform and Taxpayer Protection Act (S. 1217): Mandates 10 percent capital, up front, for the system to protect taxpayers against future bailouts. Winds down Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) within five years of bill passage. Transfers appropriate utility duties and functions to the modernized, streamlined and accountable Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC. Replaces the failed ‘housing goals’ of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient decent housing available. The fund is NOT paid for with tax dollars, but through a small FMIC user fee that only those who choose to use the system pay.”

WHITE HOUSE SPOKESWOMANAmy Brundage: “The president strongly supports comprehensive housing finance reform that would forever end Fannie Mae and Freddie Mac’s flawed business model that put the American taxpayers on the hook. … The administration welcomes this bipartisan effort on reforming our housing finance system spearheaded by Sens. Corker and Warner. Over the coming months, we look forward to working with Senate Banking Committee Chairman Johnson, ranking member Crapo, and members from both parties in the House and Senate that seek to reform our housing finance system.”

MORTGAGE BANKERS ASSOCIATION CEO David H. Stevens: “The introduction of this bipartisan bill represents an important step in redefining the government role in housing finance and is a positive framework on which to begin this crucial debate.”

NAFCU CEO Fred R. Becker Jr.: “Of primary importance to NAFCU is ensuring credit unions continue to have access to the secondary mortgage market in any housing reform proposal and get fair pricing based on the quality of their loans.”

CROSS-BORDER SWAPS FLY-AROUND —

BETTER MARKETS’ Dennis Kelleher: “CFTC Commissioner Wetjen, overseas in London before an audience of derivatives dealers and their lobbyists, announced that he is again going to insist on delaying implementation of critically important financial reform regulations. … The claim that more time and input is needed is baseless. The CFTC has been working on cross-border regulation for more than 2 ½ years, has considered more than 322 filed comment letters and has had dozens of meetings, 99 percent of which have been with the financial industry and its lobbyists.” http://bit.ly/11M96z0

SIFMA’s Ken Bentsen: “With the July 12th deadline fast approaching, an extension of the exemptive order on the cross-border treatment of swaps is what is necessary. Issuing final guidance or interim final guidance would be premature because the Commission and the SEC need time to harmonize how US law applies overseas. Critically, they need to harmonize approaches to ‘substituted compliance’ with foreign regulators working to implement comparable rules in their jurisdictions”

ALSO FOR YOUR RADAR —

ITALY FACES BIG POSSIBLE DERIVATIVE LOSSES — FT’s Guy Dinmore in Rome: “Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis, according to a confidential report by the Rome Treasury that sheds more light on the financial tactics that enabled the debt-laden country to enter the euro in 1999. A 29-page report by the Treasury … details Italy’s debt transactions and exposure in the first half of 2012, including the restructuring of eight derivatives contracts with foreign banks with a total notional value of €31.7bn.

“While the report leaves out crucial details and appears intended not to give a full picture of Italy’s potential losses, experts who examined it told the Financial Times the restructuring allowed the cash-strapped Treasury to stagger payments owed to foreign banks over a longer period but, in some cases, at more disadvantageous terms for Italy.” http://on.ft.com/19rG5B7

CHINA PUSHES DEEP INTO U.S. REAL ESTATE — NYT’s Julie Creswell: “First, it was the Japanese. Moneymen from Tokyo blew into the United States to buy famous pieces of the American landscape … Now, about a quarter-century later, another set of deep-pocketed foreign buyers is pushing ever deeper into United States real estate: the Chinese. Undaunted by Japan’s real estate misadventures in the 1980s … Chinese investors are fanning out in the United States. What began with a few isolated purchases two years ago has become a hunt for trophy properties and billion-dollar deals. … Some caution that China could quickly retreat, as Japan did, if its economy worsens. … And yet in recent weeks, several big deals in New York City have set real estate circles abuzz. Zhang Xin, a Chinese business magnate and chief executive of the largest commercial real estate developer in Beijing, joined forces with the Safra family of Brazil to buy a large piece of the General Motors Building in Midtown.

“Dalian Wanda Group, a big Chinese developer, said it intended to build a luxury hotel in Manhattan. … The deals go beyond shimmering glass-and-steel towers: Chinese and Hong Kong investors have also become the second-largest foreign buyers of United States homes, after the Canadians. … For the moment, the Chinese government is encouraging the investments and even helping to finance them. The state-owned Bank of China has become the largest foreign lender in commercial real estate deals in the United States, replacing big European banks.” http://nyti.ms/14wcXCv

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